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Ontario's economy rates a "B," conference board says

Ontario is not as badly off as the U.S. "rust belt" states, but the province faces long-term economic challenges, the Conference Board says.

Ontario Premier and Liberal Leader Kathleen Wynne tours Cyclone MFG Inc., a company which manufactures parts for the aviation industry, during a campaign stop in Mississauga, Ont., on Tuesday, May 13, 2014.
THE CANADIAN PRESS/Chris Young (Chris Young / THE CANADIAN PRESS)

The province is not nearly as badly off as some of some of the U.S. “rust belt” states. Toronto is not Detroit and Hamilton is not Buffalo, the board says in a report to be released Thursday

But Ontario’s economic performance has slipped since the 1980s and ‘90s, and it faces long-term structural challenges that threaten its future prosperity, the board says in its annual scorecard on Canada’s relative economic health.

The report, which comes amid a provincial election campaign, is meant to help policy makers figure out “how do we get Ontario back to the head of the class,” the board’s chief economist Glen Hodgson said in an interview.

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Called How Canada Performs: Economy, the report compares 16 advanced economies, including those in Europe, the U.K., the U.S., Australia and Scandinavia.

For the first time this year, the report also ranked the 10 Canadian provinces against each other and also against the other countries.

Canada rated a “B” overall and ranked 5th on the score card. Australia was the top performer, on the strength of its exports to fast-growing China. Ireland was second, followed by the U.S. and Norway.

In the sub-categories, Canada scored an “A” for economic and employment growth, a “B for inflation and unemployment but earned a “C” for labour productivity and integration with the global economy.

The latter was measured by looking at the amount foreign firms invested directly in Canada to build or expand their operations and also the amount Canadian companies invested directly abroad.

Canada’s overall performance benefited somewhat by comparison with Europe, which has underperformed in recent years.

“It shocked me that France is so bad. We gave them a “D,” Hodgson said. He was also surprised, he said, by how much variation exists across Canada, with the provinces’ marks ranging from “A+” to “D.”

Ontario, which ranked 10th on the scorecard, has suffered from subdued export demand due to the “double whammy” of a stronger currency and weaker U.S. demand in recent years, the report notes.

As the U.S. economy improves, Ontario is experiencing a rebound, scoring “As” for employment growth as its recovers from the steep job losses during the Great Recession of 2008, the report notes.

But the province remains challenged by its lack of productivity and innovation, the report says. The report blames chronically high government deficits “that have made it difficult for the province to invest in education and innovation.”

While manufacturing will remain important to the province’s economy, Ontario is experiencing a long-term shift toward a more service-oriented economy, the report notes.

But Ontario needs to decide where it can best add value on the global supply chain, Hodgson said.

Rather than try to compete for low-skilled auto assembly jobs with countries that have lower wage structures, Hodgson said, Ontario needs to specialize in new technologies, citing the use of 3D printers to create machine tools that make parts for cars as an example.

“Ontario could be a leader, instead of a laggard,” he said.

The three resource-rich provinces of Alberta, Saskatchewan and Newfoundland & Labrador are benefitting from rising incomes and increased consumer spending, the report notes.

“We were pleasantly surprised that three provinces were at the top of the list,” said Hodgson, noting the threesome outranked all other economies in the study.

The lowest scoring provinces, Nova Scotia and New Brunswick, are struggling with high unemployment and low economic growth, the study said.

The conference board plans to release six more report cards this year. The reports will look at education, innovation, environment, health and society.

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